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First step, April 2011, Trieste Second step, March – May 2012, Tirana, Belgrade, Kiev Third Step, TA & A2F

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Meet our friends IFIs and related Funds and Commercial Banks Understand them Products, Services, Information, Opportunities and TA Programs available for SMEs Get ready for the next step How to select qualified SMEs and how to approach IFIs

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Listen carefully Do not hesitate to ask for clarifications Always bear in mind our target Never underestimate Networking

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EBRD funding criteria To be eligible for EBRD funding, the project must: ► be located in an EBRD country of operations ► have strong commercial prospects ► involve significant equity contributions in-cash or in-kind from the project sponsor ► benefit the local economy and help develop the private sector ► satisfy banking and environmental

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Project structure The Bank tailors solutions to client and project needs and to the specific situation of the country, region and sector. It assigns a dedicated team of specialists with expertise in project finance, the region and sector, law and environment.

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Project structure The EBRD funds up to 35% of the total project cost for a greenfield project or 35% of the long-term capitalisation of an established company

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Project structure Additional funding by sponsors and other co- financiers is required. The EBRD may identify additional resources through its syndications programme

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Project structure Typical private sector projects are based on at least one-third equity investment Significant equity contributions are required from the sponsors. Sponsors should have a majority shareholding or adequate operational control. In- kind equity contributions are accepted

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Types of funding available The principal forms of direct financing that may be provided by the EBRD are loans, equity and guarantees.

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Types of funding available Loans Loans are tailored to meet the particular requirements of a project. The credit risk may be taken entirely by the Bank or partly syndicated to the market.

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Loans for smaller projects Projects that are too small to be financed directly by the EBRD can still benefit from its investments and support.

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The EBRD supports local commercial banks, which in turn provide loans to SMEs. Tools: credit lines, bank-to-bank loans, standby credit facilities and equity investments in the local banks. SMEs should contact local banks directly to access finance and check local requirements and investment limits.

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Small and medium-sized loan financing available from several Commercial Banks with which the EBRD has signed a loan or standby facility or in which the EBRD has made an equity participation. Loans to micro and small businesses available from Banks across the EBRD region.

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MSE projects at the EBRD EBRD’s Micro and Small Enterprise (MSE) lending programmes are designed to provide individual entrepreneurs and micro and small firms with access to finance that has traditionally not been made available to them

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MSE projects at the EBRD EBRD’s MSE projects have a strong regional focus, supporting economic development and social stability in the countries of operation. EBRD co-operates with existing commercial banks to build capacity for MSE lending operations and also sets up “greenfield” specialised microfinance banks.

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MSE projects at the EBRD EBRD works with existing banks to develop staff and implement lending procedures tailored to the needs and possibilities of micro and small enterprises. If there is an insufficient number of suitable partner banks, EBRD, together with partner institutions, establishes a new microfinance institution.

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MSE projects at the EBRD - Applying for a Loan Loans are provided on a purely commercial basis. To be considered for financing, businesses must have adequate cash-flow, market demand for their products, and sound management. No loan is too small and collateral is a secondary consideration after the business has been analysed.

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MSE projects at the EBRD - Applying for a Loan Businesses looking to obtain loans through local banks should provide: Sound business plans for establishing or expanding a company’s business. Solid management with a proven track record.

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MSE projects at the EBRD - Applying for a Loan Businesses looking to obtain loans through local banks should provide: Products that are competitive in the marketplace. Information on owners/partners.

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MSE projects at the EBRD - Applying for a Loan Businesses looking to obtain loans through local banks should provide: Financial history. Security in the form of pledges, mortgages, etc.

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MSE projects at the EBRD - Applying for a Loan Funds provided must be used in strict accordance with the aims stated in the original business plan. In line with the EBRD’s mandate, banks ensure that all proposals pay due regard to environmental issues.

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MSE projects at the EBRD - Applying for a Loan Businesses looking to obtain loans through local banks should provide: equity contributions, either in existing or new business, of around 35% are often required.

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MSE projects at the EBRD - Applying for a Loan Restriction Funding cannot be provided to majority state-owned companies or for government- guaranteed projects.

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MSE projects at the EBRD - Applying for a Loan Micro credits of US$ 50 to US$ 10,000, are generally available for a maturity of up to 12 months initially. As companies build up a credit record, they become eligible for larger loans with longer tenors for a variety of purposes (trade, services and investment).

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MSE projects at the EBRD - Applying for a Loan The firm’s debt capacity is analysed before loans are extended. Individual entrepreneurs and firms may apply for micro credits.

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MSE projects at the EBRD - Applying for a Loan Small loans are usually available in amounts of up to US$ 200,000 (higher in exceptional cases), with maturities of up to three years or exceptionally up to five years. These loans, which may be for working capital and/or fixed assets, are provided to companies involved in trade, production or service industries.

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MSE projects at the EBRD - Applying for a Loan Potential borrowers must have sufficient cash-flow from the project to repay the loan exhibit good management skills exhibit good business planning

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Types of funding available Equity EBRD invest equity ranging from €2 million - €100 million in industry, infrastructure, and the financial sector.

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Types of funding available – Equity EBRD uses innovative approaches and instruments and expects an appropriate return on investment. EBRD only take minority positions and will have a clear exit strategy.

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Equity and quasi-equity instruments Redeemable preference shares. Listed and unlisted. Underwriting of share issues by public or privately-owned enterprises. Financing the transfer of shares in existing enterprises, only used in cases of privatisation where such a transfer improve efficiency. Other forms.

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EBRD also participates in investment funds, which in turn invest in medium-sized companies that need to expand their business. Equity funds are focused on a specific region, country or industry sector, have local presences and are run by professional venture capitalists. Their main investment criteria are consistent with the EBRD's overall investment policy.

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Terms and conditions The terms and conditions of EBRD investment depend on risks and prospective returns associated with each project. They are also affected by the financial/ownership structure of the project company. As the Bank has limited capital resources, it does not take long-term equity investments or controlling interests. Nor does it assume direct responsibility for managing the project company.

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Equity funds for smaller enterprises To give entrepreneurs and small firms greater access to finance, the EBRD also supports financial intermediaries, such as local commercial banks, micro business banks, equity funds and leasing facilities.

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Equity financing Equity finance is available from EBRD- supported private equity funds, donor- supported equity funds and directly from the EBRD. Equity funds support all kinds of investments including business start-ups, expansion and acquisitions

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Equity financing Some funds specialise in financing companies in need of restructuring, in distressed situations or mezzanine capital for a later stage. Fund investments generally have a higher prospective return and require longer-term risk capital than standard EBRD projects. Investment criteria are consistent with EBRD policy, but investment decisions are made by fund managers.

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EBRD direct investment ETC/DIF Equity finance up to €6 million for businesses lead by experienced local entrepreneurs may be available directly from the EBRD through the EBRD Direct Investment Facility. The EBRD's Direct Investment Facility (DIF) demonstrates the viability of smaller businesses based in countries and regions at an early stage in the transition (ETC) to the market economy.

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EBRD direct investment Equity and limited debt financing may be available to attractive private sector businesses, especially those led by motivated and experienced local entrepreneurs. Investments may be in existing enterprises proposing to expand their businesses or product lines, or start-ups with an unusually strong business plan and sponsors with relevant business experience. Sponsors may contribute capital at least partially in kind, but are expected to make reasonable cash contributions as well.

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EBRD direct investment Through DIF, the EBRD can consider most opportunities to provide new equity capital to: Fast growing companies that cannot expand with debt finance alone Locally owned companies whose balance sheets require strengthening in order to enable them to take on additional debt Companies led by motivated and experienced local entrepreneurs

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Investment terms (DIF) Investment range generally between €500,000 and €6 million Equity share target range is 25-30% but up to 49% Preferred investment span is 3-5 years, but up to 7 years is possible Flexible financing package including equity and debt (usually subordinated) Clear prospect of exit through joint sale with other shareholders to third party or sale back to other shareholders

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Project requirements Significant growth potential Experienced sponsors and management with a proven track record Strong competitive prospects in relevant local/regional markets Sound financial basis and well-structured financing plans Well-developed and specific business plans Evidence of capacity to implement business plans Realistic entry valuation Willingness to share corporate governance including EBRD Board membership and role for EBRD in key strategic decisions Realistic exit strategy that will provide a performance based return for the EBRD Prospective investment returns which are appropriate to equity and commercial risk

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Guarantees The EBRD provides various types of guarantees. These range from all-risk guarantees whereby the Bank covers lenders against default regardless of the cause, to partial risk-specific contingent guarantees covering default arising from specified events. In all cases the maximum exposure must be known and measurable and the credit risk must be acceptable. Precise legal definitions of the events guaranteed and pricing are handled on a case-by-case basis.

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SME leasing finance Financial and operating leases for small businesses are available from EBRD-supported leasing facilities. They cover a range of goods such as commercial vehicles, equipment and machinery. Leasing finance enquiries http://www.ebrd.com/downloads/funding/micro_business_banks.pdf

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The funding process The total lifecycle of an EBRD project, from initiation to repayment, can range from one year for working capital or trade financing projects to 15 years for long-term sovereign infrastructure projects.

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The funding process EBRD project cycle consists of the following stages: Concept review EBRD’s Operations Committee approves the project concept and overall structure, including the proposed financing structure and supporting obligations. EBRD and the client sign a mandate letter, which outlines the project plan, development expenses and responsibilities.

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The funding process Final review Once the basic business deal (including a signed term sheet) has been negotiated and all investigations have been substantially completed, the project receives a final review by OpsCom.

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The funding process Board review The EBRD President and operations team present the project to the Board of Directors for approval. Signing The EBRD and the client sign the deal and it becomes legally binding.

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The funding process Disbursements Once repayment conditions are agreed and the Bank’s conditions met, the funds are transferred from the Bank’s account to the client’s account. Repayments The client repays the loan amount to the EBRD under an agreed schedule.

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The funding process Sale of equity The Bank sells its equity investments on a non- recourse basis. Final maturity The final loan amount is due for repayment to the Bank. Completion The loan has been fully repaid and/or the EBRD’s equity investment divested.

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EBRD Small Business Support Micro, small and medium-sized enterprises (MSMEs) form the backbone of a dynamic market economy and the EBRD fosters entrepreneurship in its countries of operations not only through capital funding, but also by providing business expertise.

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EBRD Small Business Support The Enterprise Growth Programme (EGP) and Business Advisory Services (BAS), managed by the Small Business Support (SBS) team, are essential components of the EBRD transition toolkit. The two programmes promote good management in the micro, small and medium-sized enterprise (MSME) sector in the EBRD region, by providing direct support to individual enterprises, helping them to grow their businesses. The SBS provides MSMEs with direct assistance from experienced business advisors and consultants, helping them to adapt to the demands of a market economy.

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The Trade Facilitation Program TFP running successfully since 1999. TFP promote foreign trade to, from and amongst the EBRD countries of operations and offers a range of products to facilitate this trade. Through TFP the EBRD provides guarantees to international confirming banks, taking the political and commercial payment risk of international trade transactions undertaken by banks in the countries of operations (the issuing banks).

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The Trade Facilitation Program EBRD also provide short-term loans to selected banks and factoring companies for on-lending to local exporters, importers and distributors. TFP can guarantee any genuine trade transaction to, from and among the countries of operations. More than 700 confirming banks throughout the world have joined the TFP, including 130 banks in 23 of EBRD’s countries of operations.

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The Trade Facilitation Program TFP strengthens the ability of local banks to provide trade financing and through these banks gives entrepreneurs throughout our countries of operations the support they need to increase their access to their import and export trade. Issuing Banks http://www.ebrd.com/downloads/trade/IB_website_list_.pdf Confirming Banks http://www.ebrd.com/downloads/trade/CB_website_list_1.pdf

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Loans for IFC's Own Account: A-loans IFC operates on a commercial basis. It invests exclusively in for-profit projects in developing countries and charges market rates for its products and services. In FY11, IFC made commitments for nearly $5 billion in new loans. Loans from IFC finance both early-stage companies and expansion projects in developing countries. IFC also make loans to intermediary banks, leasing companies, and other financial institutions for on- lending. The credit lines are often targeted at small and medium enterprises or at specific sectors.

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Loans for IFC's Own Account: A-loans Most IFC loans are issued in leading currencies, but local currency loans can also be provided. Loans typically have maturities of seven to 12 years. Grace periods and repayment schedules are determined on a case-by-case basis in accordance with the borrower's cash-flow needs. If warranted by the project, IFC provides longer-term loans and longer grace periods. Some loans have been extended to as long as 20 years.

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Loans for IFC's Own Account: A-loans To ensure the participation of other private investors, A-loans are usually limited to 25 percent of the total estimated project costs for greenfield projects, or, on an exceptional basis, 35 percent in small projects.

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Loans for IFC's Own Account: A-loans For expansion projects, IFC may provide up to 50 percent of the project cost, provided its investments do not exceed 25 percent of the total capitalization of the project company. Generally, loans for IFC’s own account range from $1 million to $100 million.

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Loans for IFC's Own Account: A-loans IFC is willing to extend loans that are repaid only from the cash flow of the project, without recourse or with only limited recourse to the sponsors.

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IFC Investment Services Partnering with IFC Syndications IFC promotes development by mobilizing financing for the private sector in its developing member countries. IFC operate as both a financial and developmental institution. IFC acts as a catalyst in raising capital from foreign and domestic sources, in both private and public markets, for projects in the private sector of its member countries.

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IFC Investment Services - Equity Finance IFC takes equity stakes in private sector companies and other entities such as financial institutions, portfolio and investment funds in developing countries. IFC is a long-term investor and usually maintains equity investments for a period of 8 to 15 years. IFC prefers to exit by selling its shares through the domestic stock market in a way that will benefit the enterprise, often in a public offering.

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IFC Investment Services - Equity Finance IFC invest directly in companies’ equity, and also through private equity funds. In FY11, equity investments accounted for nearly $2 billion of the commitment IFC made for its own account.

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IFC Investment Services - Equity Finance IFC's equity investments are based on project needs and anticipated returns. IFC does not take an active role in company management. IFC risks its own capital and does not accept government guarantees. To meet national ownership requirements, IFC shareholdings can be treated as domestic capital or local shares

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IFC Investment Services - Quasi Equity Finance IFC offers a full range of quasi-equity products with both debt and equity characteristics to private sector projects in developing countries. These products are called C-loans.

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IFC Investment Services - Quasi Equity Finance IFC provides convertible debt and subordinated loan investments, which impose a fixed repayment schedule. It also offers preferred stock and income note investments, which require a less rigid repayment schedules. Quasi-equity investments are made available whenever necessary, to ensure that a project is soundly funded.

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IFC Investment Services - Equity and Debt Funds IFC promotes foreign portfolio investment in developing countries by establishing and investing in a wide range of funds, such as private equity funds and debt funds that invest in emerging-market securities. By pioneering and promoting such funds for developing countries, IFC has introduced many international portfolio investors to emerging markets.

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IFC Investment Services - Equity and Debt Funds Through IFC's mobilization efforts, both large and small companies in the developing world gain access to longer-term finance, many for the first time. Accessing financing from international markets helps them enhance their competitiveness in more open economies around the world.

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IFC Investment Services - Structured Finance Products IFC utilizes structured finance products to provide cost-effective forms of financing that would not otherwise be readily available to clients, with an emphasis on providing long-term local currency solutions and access to local capital markets. IFC use its expertise in structuring—along with its international triple-A credit rating — to help clients diversify funding, extend maturities, access new investors, and obtain local currency funding. IFC also work with financial intermediaries to offer new products and access new markets that help further IFC’s mission. IFC has completed structured finance transactions in over 40 different countries.

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IFC Investment Services - Intermediary Services Significant IFC financing channeled to private sector projects through intermediaries. IFC provide finance to a wide variety of financial intermediaries. Working through intermediaries allows IFC to extend its long-term finance to more companies, in particular to small and medium enterprises (SMEs) and microfinance entrepreneurs.

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IFC Investment Services - Intermediary Services In many regions of the world, small private companies are the principal engines of economic growth and employment creation. But micro, small and medium-size investments carry high transaction costs, limiting smaller companies' access to long-term finance. By working with local or specialized financial institutions, IFC finance can reach these businesses.

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IFC Investment Services - Intermediary Services Examples of investments in financial intermediaries: Credit and equity lines to banks for on-lending to local companies. (working capital and investment financing). Private equity and investment funds, such as index funds and country funds. IFC also invests in venture capital funds which help channel flows to companies that generally are unlisted and do not receive the notice of large investors. Leasing companies, which are essential to the development of SMEs as smaller companies typically lease costly capital equipment. IFC has actively helped establish leasing industries in countries all over the world

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Subnational Finance (public) The Subnational Finance Department is a combined initiative of the World Bank and the International Finance Corporation. provide states, provinces, municipalities, and their enterprises with financing and access to capital markets, without sovereign guarantees. On a selective basis also provide financial support to nationally owned enterprises operating in natural monopoly infrastructure sectors.

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IFC How to Apply for Financing – Eligibility Criteria To be eligible for IFC funding, a project must: Be located in a developing country that is a member of IFC; Be in the private sector; Be technically sound; Have good prospects of being profitable; Benefit the local economy; and Be environmentally and socially sound, satisfying IFC environmental and social standards as well as those of the host country.

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IFC does not lend directly to micro, small, and medium enterprises or individual entrepreneurs, but many of its investment clients are financial intermediaries that on-lend to smaller businesses.

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IFC Investment Proposals No standard application form for IFC financing. A company or entrepreneur, foreign or domestic, seeking to establish a new venture or expand an existing enterprise can approach IFC directly, by submitting an investment proposal. Proposals can be submitted to IFC's sector/industry departments; regional departments at IFC headquarters in Washington; or the regional field office closest to the location of the proposed project.

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IFC Investment Proposals An investment proposal should include: Technical feasibility, manpower, raw material resources & environment: Comments on special technical complexities and need for know-how and special skills. Possible suppliers of equipment. Availability of manpower and of infrastructure facilities (transport and communications, power, water, etc.). Breakdown of projected operating costs by major categories of expenditures. Source, cost, and quality of raw material supply and relations with support industries. Import restrictions on required raw materials. Proposed plant location in relation to suppliers, markets, infrastructure, and manpower. Proposed plant size in comparison with other known plants. Potential environmental issues and how these issues are addressed.

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IFC Investment Proposals An investment proposal should include: Government support & regulations: Specific government incentives and support available to project. Expected contribution of project to economic development. Outline of government regulations on exchange controls and conditions of capital entry and repatriation. Timetable envisaged for project preparation & completion

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Global Trade Finance Program The program offers confirming banks partial or full guarantees to cover payment risk on banks in the emerging markets. These guarantees are transaction-specific and apply to: -letters of credit -trade-related promissory notes and bills of exchange -bid and performance bonds -advance payment guarantees -suppliers credits for the import of capital goods In addition, IFC provides funding to banks for short-term pre-export financing.

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Global Trade Finance Program The program combines global reach and maximum flexibility to assist trade finance deals by: -delivering trade solutions through a global network of participating banks -covering large and small transactions in challenging countries -using master agreements, which facilitate 24-48 hour response time via SWIFT for individual transactions -having in place a dedicated trade unit to serve business needs -offering commercial pricing with no commitment fees -supporting all valid private sector trade transactions meeting IFC criteria -covering up to 100 percent of transaction value -providing tenors of up to three years to support capital goods imports.

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IFC Advisory Services Private sector development requires more than just finance. advisory services can play powerful role in unlocking investment and helping businesses expand and create jobs.

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IFC Advisory Services IFC provides advice, problem solving, and training to companies, industries, and governments. Companies need a regulatory environment that enables entrepreneurship, and advice on business best practices. Governments account for around half of IFC advisory projects. IFC also help investment clients improve corporate governance and become more sustainable.

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Thank you and good luck for the next step Andrea Maccanico External Expert - Informest training@fit4smes.net